2012年ACCA考试《F7财务报告》讲义辅导(2)
II. Specific application 1. Future operating lossesIn the past, provisions were recognized for future operating losses on the grounds of prudence. However these should not be provided for the following reasons.
①They relate to future events;
②There is no obligation to a third party. The loss-making business could be closed and the losses avoided.
2. Onerous contracts
An onerous contract is a contract in which the unavoidable costs of meeting the contract exceed the economic benefits expected to be received under it.
A common example of an onerous contract is a lease on a surplus factory. The leaseholder is legally obliged to carry on paying the rent on the factory, but they will not get any benefit from using the factory.
The least net cost of an onerous contract should be recognized as a provision. The least net cost is the lower of the cost of fulfilling the contract or of terminating it and suffering any penalty payments.
Some assets may have been bought specifically for the onerous contract. These should be reviewed for impairment before any separate provision is made for the contract itself.
1Demo
Droopers has recently bought all of the trade, assets and liabilities of Dolittle, an unincorporatd business. As part of the take-over all of the combined business’s activities have been relocated at Droopers main site. As a result Dolittle’s premises are now empty and surplus to requirements.
However, just before the acquisition Dolittle had signed a three year lease for their premises at $6000 per calendar month. At 31 December 2003 this lease ad 32 months left to run and the landlord had refused to terminate the lease. A sub-tenant had taken over part of the premises for the rest of the lease at a rent of $2500 per calendar month.
Required
(a) Should Droopers recognized a provision for an onerous contract in respect of this lease?
(b) Show how this information will be presented in the financial statements for 2003 and 2004. Ignore the time value of money.
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